I’m the Washington D.C. bureau chief for Forbes and have worked in the bureau for more than two decades. I've spent much of that time reporting about taxes -- tax policy, tax planning, tax shelters and tax evasion. These days, I also edit the personal finance coverage in Forbes magazine and coordinate outside tax, retirement and personal finance contributors to Forbes.com. You can email me at jnovack@forbes.com and follow me on Twitter @janetnovack.

5 Questions Congress Should Ask Obama Commerce Nominee Penny Pritzker

This is a guest post by Stephane Fitch, the former Chicago Bureau Chief of Forbes and the founder and managing editor of FitchInk, an editorial services and distributive journalism firm. He wrote a groundbreaking 2003 cover story for Forbes on the Pritzker family’s finances.

Members of Congress are infamous for not reading the bills they pass. But perhaps they—or their staff—should spend some time studying the 184-page financial disclosure that Chicago billionaire heiress and Obama Secretary of Commerce nomineePenny Pritzker filed with the Office of Government Ethics this week.

The document is a curious mix of detail and shadow. As in Mitt Romney’s financial disclosures, there are countless entities—legal envelopes, both offshore and on, whose holdings are opaque. Pritzker lists three pages of family trusts, with names like “F.L.P. Residuary Trust #13” or “P.G. – Jean Trust,” to which she has been a consultant.

Some of the detail is breathtaking— Pritzker’s income in 2012 was $57 million. And some is amusing—at the time of the filing, Pritzker owed somewhere between $250,000 and $500,000 on her American ExpressAmerican Express card, which rivals President Obama’s annual salary.

Will Congress explore Pritzker’s finances closely? She’s a fine businesswoman and well qualified for the job. She’s shown an eagerness to perform public service, and she’s trusted by both President Obama and many in the business community. Some members of Congress may decide that’s all they need to know. Others, such as Iowa Republic Charles Grassley (R-Iowa) are already vowing a look at her “offshore tax avoidance activities.”

Certainly there’s an extraordinary opportunity here. The Pritzkers are like America’s Rothschilds. Yes, a few journalists, including me, have shed some light on how they managed to build and pass along such Brobdingnagian wealth from one generation to the next and the next. (Currently, 10 members of the Pritzker clan, including Penny, are individually rich enough to be on the Forbes 400 list.) But the family has remained largely mute on the subject.

The foundation for the Pritzker fortune was built by Penny’s grandfather, A.N., and uncles Jay and Robert. These men were sharp, joyful dealmakers. They also had a famous taste and talent for avoiding taxes. Some of their tricks were old-school—buying profitable but run-down companies rich in tax-loss carry-forwards, for example. But others were revolutionary. They housed their wealth in trusts, many of them in the Bahamas, and named Penny and her 12 cousins beneficiaries. When Jay and Robert found a business they fancied, they’d have one of the trusts purchase it. In an additional twist, the offshore trusts would borrow money for the purchases from a bank-type entity called ICA, itself owned by the Pritzkers’ trusts.

Describing this kind of thing in magazines is not like having it on the public record. Congress could finally make public one of the grandest and most successful family tax-avoidance schemes ever—one that exposed some pretty significant blind spots in the laws that govern family trusts. Congress should ask some probing questions. Pritzker’s first act as a public servant could be to answer them frankly. A.N. Pritzker set up the family’s first offshore trusts 50 years ago when Penny Pritzker, now 54, was only four. It’s clear some of the family’s ploys wouldn’t be allowed today. But a full explanation of what’s been done might illuminate loopholes that remain.

It would take several days to really digest the information in Pritzker’s disclosure, as well as a letter she’s written spelling out what she plans to keep and what she’ll divest. (She’ll resign from the board of the family built Hyatt Hotels Corp., while keeping a $400 million stake in the now public company. But she’s agreed to divest her holdings in 221 private entities and public companies, including Berkshire HathawayBerkshire Hathaway, within 90 days of Senate confirmation.) After skimming the disclosures, I came up with a few questions and follow-up questions I hope will be asked. Here they are, in descending order of importance:

1) Tell us from the very, very beginning: What led to your being paid $53.6 million in “consultant” income by your family’s offshore trusts in 2012? The huge payment, which appears on page 98 of Penny Pritzker’s filing, is apparently not an annual salary. Melissa HarrisHarris and Katherine Skiba at the Chicago Tribune report that it was a one-time payment in reward for the role that she played managing the 10-year carve-up of the Pritzker family fortune. The size of the payment speaks to how complicated the job was. Why so complicated? What was going on in those family offshore trusts? Was the process difficult because Penny and her tax attorneys had to cook up new tax-avoidance schemes to replace the old ones?

2) Did your family’s carve-up finally produce significant tax payments? When A.N. Pritzker died and later, when Jay and Robert Pritzker died, the IRS received wee fractions of the family fortune. The family’s wealth was tucked into trusts benefitting Penny and her cousins. The family decided to break that fortune up in 2001. Whether they managed to do it without triggering some huge tax bills remains a mystery. Pritker doesn’t have to produce a tax return to run Commerce, but President Obama has been a severe critic of special tax loopholes for the very wealthy. Politically, there’s pressure here for Pritzker to volunteer some numbers—and explanations, if the numbers seem too low.

3) Why are you your own biggest debtor? On page 100 of her financial disclosure, Pritzker says that she has two loans from PSP Capital, her investment firm, each in excess of $25 million. One is for a property in Colorado. The other is a loan “with respect to investment operations.” Is this part of a tax-avoidance scheme? It reminds the casual observer of the arrangement that the offshore trusts had with their lender, ICA.

4) Why is even your house in an LLC? Most people own their primary homes directly. Pritzker indicates on page 2 of her filing that hers is in an entity called 1901 Orchard Property LLC. She developed her residence at 1901 North Orchard Street in Chicago’s tony Lincoln Park neighborhood on two adjacent lots she purchased. (One of the lots was purchased in February 2007, meaning the house was built during the financial crash. You won’t see good data about 1901 N. Orchard on real estate portals, but there’s a lovely view of it on GoogleGoogle Maps.) Pritzker values the home at between $1 million and $5 million. Why put it in an LLC? You lose tax benefits, don’t get any additional liability protection and potentially get less. Is there something she knows that the rest of us don’t?

5) How do you rack up $250,000 on an American Express card? Pritzker listed three credit cards on page 100 of her financial disclosure: a Chase card and Neiman Marcus card, each with balances below $15,000, and an American Express with a balance between $250,000 and $500,000. How does a powerful, busy executive find anywhere near enough time to build that kind of monthly bill? Has she figured out a way to accumulate Amex rewards points more quickly than the rest of us do? Ah, to be rich.

Stephane Fitch, a former Forbes bureau chief, is founder and managing editor of FitchInk, an editorial services and distributive journalism firm.

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